Are price cuts hurting Walmart's earnings?
Filed under: Company News, Wal-Mart Stores
Walmart (WMT) has cut prices on products from food to book downloads to toys. It offers $4 prescriptions at its in-store pharmacies. Does the world's largest retailer make any money on these products? It won't say. But $10 toys and $9 electronic books must have tiny margins, if they have any margins at all.
Low prices do bring in additional customers. Reuters writes that Craig Johnson, president of Customer Growth Partners, says "since January, Wal-Mart's share of the U.S. retail market has risen 0.85 percentage points to 11.3 percent."
According to Walmart's 10-Q for the period ending July 31, its gross margins moved up slightly from 2008 to 2009. Widespread discounting could undermine that number, which is something Wall Street would not like.
Walmart may be hoping that if customers come to its stores or go online for significant bargains, they will also buy something else as they walk through the aisles or browse Walmart.com. The "loss leader" is an old trick in the retail business, but it does not always work. Sometimes customers walk in the door, get their bargain and leave.
Walmart is taking a risk by offering products that are probably priced below cost. Its earnings over the holiday period will prove whether or not this strategy works.
Douglas A. McIntyre is an editor at 24/7 Wall St.



























Reader Comments (Page 1 of 4)
10-19-2009 @ 8:19AM
Chuck said...
Wal-Mart price cuts will most likely increase their profits. They sure know what it takes to attract customers! But, I am also sure the WalMart haters will see this as a crime against its customers. My disabled son works at WalMart. He is paid a fair wage for his education and experience level and he is treated with respect. So, to all WalMart haters, shop elsewhere and don't work there.
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10-19-2009 @ 2:57PM
mickey said...
Wal-Mart is proactive. Good for them. At least they don't try to hook you in with a couple of good prices and then screw you on the other 90%. Wal-Mart haters are entitled to their own opinions. I'd rather save money.
10-20-2009 @ 12:28AM
Ms Lady said...
Wal-mart is only beneficial to the assistant managers. If you are anyone less than that, you'll get treated unfairly. Yeah, it's easy to get a job there, but they start u off with the lowest possible payrate, @ part time. You'll have to work a year to get full-time, not guaranteed. When business is good they give good hours. When business is slow, u'll work 5 days, 1day 8h shift, then 4 days, 4 or 5 hours. 5 hours shifts are the most work they can get out of you without giving u a lunch. They love this shift. The benefits are the quarterly bonuses, not quaranteed, and the discount card. They are at the point of lowering prices cause the holiday season is coming around and they are trying to get more sales. The first of the year, prices go back up.
10-20-2009 @ 1:41AM
Stephanie said...
I've worked for Wal-Mart, I've seen the good and bad in the company. It's great your son was given a wonderful job there, but perhaps that has over tinted your glasses a bit . . .the rose color kind. The store I worked for hired a lot of people for Christmas last year, then promptly told them all not to return to work . . . TWO days later. Yeah, wonderful, and why? Prices were down a bit lower than expected, although customer demand of services were not. Wal-Mart DOES need to downsize, but not at the store level where it affects the customers . . . EXACTLY how much (and not that glorified set amount, I'm talking bonuses ect) do the corporate employees and family members make? I'm sure that 7 figure annual pay check could take a tiny cut in order to employ more people that would ultimately help satisfy more customers. Heaven forbid that they give up a penny though . . . no way, slashing prices (paychecks) are for the mere store workers.
10-20-2009 @ 5:10PM
justin idea said...
sometimes bad people do good deeds for the wrong reasons! when you support wal-mart you support the chinese govt. which means you support: govt. enforced abortion, living children taken from parents arms as part of their population control, child labor, non-existant worker protection (osha), workers are exposed to anything and if it will kill them in 20 years it's the perfect company retirement plan. NO EPA. They are polluting the world while we cap and trade. To save a few dollars we gave up on human rights, the enviroment,and our jobs. America lost when we gave up our morality for a little cheaper "stuff". Be glad tour child isn't in china, then you would really see how wal-mart cares. The people who shop there are just as inhumane.
10-19-2009 @ 8:40AM
joe said...
Walmart is cool.
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10-19-2009 @ 9:16AM
Tech said...
Well Walmart does employ more Americans than anybody else besides the "government" now but to cut their prices they must be using more prison labor in Chinese factories and a third of their labor is slave/prison labor. It's the global economy and the banksters have made their big move with the fraud 911 "attack", Patriot Act, NSA spying on all of us, and overturning the constitution. JP Morgan and Goldman Sachs took over and the real rulers are the private banks of the FED and all your federal taxes go into their private banks. You control ALL the money you control everything. David Rockefeller is a globalist and Nick Rockefeller and Goldman Sachs backed Chindia to it's rapid rise. Now I am all for global peace and order but you have to wonder if having a few unelected banksters run everything is good for us little people. So far the banksters sure haven't run things very well for our benefit or well being so how will it be when they really have total control? Nature helps clear your head from the baloney and propaganda although their's not too much left today and it's hard to get away from the group think BS going on. Glad I'm old.
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10-19-2009 @ 9:25AM
GB said...
Please remove your tin foil hat
10-19-2009 @ 9:57AM
gleeminghope said...
You missed one important bankster, George Soros. And you forgot to mention the Trilateral Commission which is in control of what is going on globally. I just read an article where George Soros purchased 3,446 shares of Goldman Sachs stock to bring his shares up to 18,000 or 40.63 of the holdings. This was in 2008. Ironically, the banking industry collapses and Goldman Sachs gets over $10 billion in bailout money and now Goldman Sachs is giving an average of $9,000 in bonuses. Only in America. George Soros was also respsonsbile of getting Obama elected. Obama is a bought man, a puppet, while Soros and Rockefeller's are pulling the strings. Do you think it just so happened that the banking/housing boom collapsed just before the election. Think again..these bangsters know what they are doing and they are trying to put fear in every American..and it is working...they are driving our prices down so they can benefit. They are the only winners in this game, we are the suckers..
10-19-2009 @ 10:05AM
Vin Bickler said...
You are not only old, but stupid, too. Thinking that the attack on this country on September 11, 2001 was a "fake" attack, you are a nut case.
10-19-2009 @ 10:49AM
Lesley said...
There's nothing inherently immoral about employing prison labor to lessen the societal cost of incarceration. I just wish we did it more in America to ameliorate the tax burden for hard-working, law-abiding citizens.
10-19-2009 @ 2:28PM
Rhett said...
Tech, you may be old, but also misinformed. US federal prisons have work functions and make many of the items used by other federal functions. State prisons also have work units - like making the states' license plates. However, I assume your logic that sitting in prison and sharpening their shivs is enough to keep them busy and non-productive.
10-19-2009 @ 9:47AM
Paul Patriot said...
GB remove your nose from the asses of the Ultra wealthy bankster rulers of the world. Tin foil stuffed in your ears so you dont here the cries of revolution!
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10-19-2009 @ 9:50AM
Tech said...
Baa, baa bleat the sheep. Maybe when you're old you'll figure it all out but most people are probably better off not knowing anything. America was sold out in 1913 when JP Morgan and Rockefeller agents of the Rothchild Bank bought with the FED/IRS scam. JP Morgan only owned about 18% of the "bank". Easy to force Wilson to sign it as they had financed his campaign and the IRS collects their tax but the money is deposted into their private banks -look at who stamps your Federal Tax checks-not the "government". By controlling the media and public education they brainwash everyone and make tons of money with wars, booms and busts, taxes, and controlling credit, interest rates, the money supply which all businesses rquire. The "government" is just a front to make it look good to the little people and sell the BS. All an illusion really and it's a good thing people don't ever think. America died quite awhile ago, corporate banksters run the show and they are globalists. Cheney was director for David Rockefeller's "Council on Foreign Relations" and Obama's chief foreign policy advisor co-founded his Trilateral Commision-you're screwed and I voted for Ralph Nader although sometimes I write in Rockefeller! Hitler was a master at propaganda and he had millions of robotic citizens goose stepping and slaughtered 60 million sheep! He was financed by these boys like Prescott Bush at Union Banking Corp. in NYC-"Adolph's Angel" it was called in the papersand FDR had seized their money but afterwards it was quietly returned and he slunk down to Texas and ran for the Senate. The Harrimans were with that and they started in the slave and opium trade way back. Not too many people actually run things and for most life is an illusion, a Matrix you could say.
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10-19-2009 @ 10:06AM
gleeminghope said...
That is why they are so upset with Fox News, they don't control it. They are being exposed. Everyone keeps forgetting one key gangster/bankster in this whole scheme of things and it is George Soros. He purchased 3,446 shares of Goldman Sachs stock in 2008 to bring his shares up to 18,000 or almost 41% of the holdings..at the same time the Banking industry goes down..then Goldman Sachs receives $10 billion in bailout money from the government and now they are so profitable that they are paying an average of $9,000 per employee in bonuses. Soros is also the man that got Obama elected. You cannot trust Republicans or Democrats, yes Cheney was in on it and now Obama is. Obama is a bought man..a puppet. He is just doings as he is told. Look up Soros and his mission and it matches that of guess who, Obama. Most people don't even realize that they nominated Soros as the President, not Obama.
10-19-2009 @ 10:07AM
leatherman1457 said...
I see that wal marts is setting itself up for a bailout from us the us goverment. it has made itself to big to collaspe,just like the banking industry. now that it is cutting prices and into it'sprofits,.wal mart will approach the goverment and scare them by saying since we have severl stores in even the smallest town in America if we collaspe we will put millions out of work and the goverment will give walmart hundered of billions of dollars of tax payers money so the hell spawn childern of sam walton will take our money and like the banks do nothing to change they wicked ways and like the banks they will be laughing all the way to the bank with our money so the can buy another mansion on the hill . wal marts is bad for America and I wish Americans would wake up kick this chinese company out of America or make it pat a tarrif for all of it.s dangerous chinese junk. and no i do not shop at the chinese store. there product have no quality control and are quite dangerous.if you look at some of the mom and pop shops that wal mart has not got closed down yet you vcan stilkl finds better deals thaan what wal marts has to offer. try it you might be suprised
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10-19-2009 @ 10:19AM
Alan said...
First of all Wal-mart is no longer the cheapest discount retailer in the country. There price's are as high or even higher then competitors.
I have almost stoped shopping there because of this.
If you have any money in your 401k's l would move it out asap in my opinion.
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10-19-2009 @ 1:57PM
Rhett said...
Alan - and who is the cheapest retailer now? Let's us in on your secret!!
10-19-2009 @ 10:30AM
one big problem said...
The problem with a giant like Wal-Mart is the bigger they are the harder they fall. At some point Wal-Mart will hit the height of there ability (like the big 3) to manage and maintain their mega stores and satisfy stock investors. They will try raising prices to meet wall streets expectation and fail. Then they will let go of the people that truly manage and operate the giants and replace them with less skilled people to save a buck. All with the fed's philosophy of (their to big to fail) and before its all said and done those once low prices will end up much higher. The savings of nickels and dimes has killed the jobs in America and the middle class American. In the end they'll trade those nickels and dimes we paid Wal-Mart and the fed's will bail them out with millions and billions in tax dollars.
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10-19-2009 @ 12:26PM
Chuck said...
Wal-Mart will fail at some point in the future if, the unions gain a foothold and the government helps them. Both are poison to business!